TSN Liquidating Corp. v. United States - 624 F.2d 1328 (5th Cir. 1980)

Rule:

The fact that a dividend may have an incidental tax benefit to the taxpayer, without more, does not necessitate the disallowance of dividend treatment.

Facts:

Appellant seller entered an agreement for sale under which appellant was to sell its subsidiary to another company. The buyer did not want certain stocks and securities held by appellant, and their value was not considered in the price negotiation. Prior to the sale appellant distributed the unwanted assets to the stockholders, and reported the distribution as a dividend. Appellee Internal revenue Service (IRS) contended that the distribution constituted a gain on the sale, and the district court agreed. 

Issue:

Should the assets distributed to a corporation by its subsidiary, immediately prior to the sale by such corporation of all the capital stock of such subsidiary, be treated, for federal income tax purposes, as a dividend?

Answer:

Yes

Conclusion:

The court determined that because the value of the unwanted assets was neither bargained nor paid for, the assets were not actually purchased and could therefore not be considered as having been sold. The court found that the distribution constituted a dividend. The court reversed and remanded the prior decision.